Fintech companies are disrupting the staid world of traditional banking. Financial services institutions (FSIs) are trying to keep pace, be competitive, and become relevant by modernizing operations by leveraging the same technologies as the aggressive fintech startups. Such efforts include cloud migration and the increased use of data to derive real-time insights for decision-making and automation.
By using the cloud as a business asset, banks are speeding their digital transformation. This transformation started slowly but is rapidly accelerating. And now the focus is on how to bring central applications and core systems into the fold. The challenge is melding a relatively new technology (cloud services have only been around 15 to 20 years) with legacy systems that have been in place 50 to 70 years and institutional processes that can span a century.
While businesses across most industries are making similar moves, FSIs have different requirements than most companies and must address special challenges. For example, keeping pace with changing customer desires and market conditions is driving the need for more flexible and highly scalable options when it comes to developing, deploying, maintaining, and updating applications. That’s where cloud helps. It offers a low(er) cost delivery path versus traditional on-premises models. Additionally, customers are demanding highly responsive data-rich applications. The modern economy is built on such applications.
A major differentiator when FSIs develop applications or move to the cloud is that the stakes are much higher. The transactions they support and the business they conduct are the bedrock of the global economy. FSI applications are typically distributed and use many types of different data. They must easily scale, be always on, have low latency access to data, and have data that is always correct.
Certainly, every business is concerned about application performance. But FSI customers today have high expectations. They are accustomed to Facebook- or Instagram-type interactions and expect nothing less. Everything must happen in real-time. An existing customer applies for a loan, and they want an instant quote on rates. Or when a potential new customer tries to set up an account, they want it to be created on the spot.
Another differentiator when FSIs develop applications or move to the cloud is that they have an installed base of legacy systems. Specifically, FSIs have significant amounts of risk because they have legacy systems and mainframes that have been around for 20, 30, or more years. There are countless mission-critical, high-risk workloads wrapped up in legacy technology not fit for the cloud.
The risks related to these legacy systems can be bucketed into a handful of groups. Most FSIs don’t or won’t have staff who can manage these older systems. There are great costs associated with keeping them going, and any migration presents a significant risk.
Why every business is an IT company
Just as Google and Facebook are IT companies, most organizations, including FSIs, are becoming IT companies or have already become IT companies, even if they do not think of themselves as such. A quick search of LinkedIn quantifies this trend. Such a search finds that the number of people employed at the top FSIs with the title of engineer, database administrator (DBA), or developer is:
- 36,000 at JPMC
- 26,000 at Wells Fargo
- 8,800 at Deutsche Bank
- 8,600 at Goldman Sachs
Many have been moving in that direction for a long time. They need to scale like the biggest and best IT companies, and they must modernize their applications and infrastructure. However, they face many risks versus rewards challenges when trying to meet demanding customer expectations and attracting the top talent to keep ahead of the competition.
The only option is for FSIs to move to the cloud using the latest technologies that deliver unparalleled performance and enable FSIs to offer more services, meet fast-changing customer demands, and undergo a digital transformation.
Moving applications to the cloud gives FSIs several advantages. They often have the agility to meet volatile market cycles, reduce costs, provide cost predictability, and open the door to new capabilities such as sophisticated analytics and artificial intelligence.
Cloud migration is key to providing new services and capabilities that are now in demand. For example, many FSIs are increasing their use of artificial intelligence. In particular, AI is coming into play in various applications ranging from chatbots to enhance the customer experience to fraud prevention tools.
The role of cloud migration
When making a move to the cloud, FSIs will have to deal with infrastructure performance and reliability issues. One major hurdle FSIs face is the need to interface to and interact with legacy systems, which run the back end of many critical industry apps. Many of the mainframes deployed decades ago in financial services are still prized for their high performance, availability, and security. Most other industries do not have such systems. FSIs must expose and incorporate data and services from such systems into their modern distributed applications. All the while, they need a way to maintain performance, reduce latency, and secure the data.
To address these issues, many FSIs are moving to application strategies based on cloud-native architectures and microservices. They are taking a forward-looking approach, rearchitecting their infrastructures for three and five years out. Compared to traditional monolithic FSI apps, such an approach offers great speed and flexibility to respond to new opportunities or provide new services and the ability to scale-up to meet growing demand.
With cloud migration, the main challenge is how to maintain overall application performance. These new distributed applications require an always-on capability, resiliency to disruptions, an ability to support real-time processing/transactions, and a way to ensure compliance with any local data protection and privacy laws. An additional challenge is that they also must develop the internal expertise to build and operate these data-rich applications at scale.
What can significantly help is an easy-to-use, high-availability, high-performance database built to address cloud scalability and performance issues. Cockroach Labs excels at this. CockroachDB gives developers a way to easily take advantage of high availability and elastic scalability features to deliver data-intensive applications that offer consistent transactions.
Learn more about how FinTech companies can more easily migrate critical applications to the cloud while maintaining performance, responsiveness, reliability, and more. Download the eBook now.
Salvatore Salamone is a physicist by training who has been writing about science and information technology for more than 30 years. During that time, he has been a senior or executive editor at many industry-leading publications including High Technology, Network World, Byte Magazine, Data Communications, LAN Times, InternetWeek, Bio-IT World, and Lightwave, The Journal of Fiber Optics. He also is the author of three business technology books.
